$21.3 billion to take HCA private again

NASHVILLE, Tenn. — The board of HCA is recommending the nation's largest for-profit hospital operator accept a $21.3 billion deal to take the company private in one of the largest leveraged buyouts ever.

The deal, which would involve the assumption of $11.7 billion in debt, comes while HCA is struggling with sliding earnings, slow growth and escalating costs for uninsured patients.

The buyout would take the Nashville-based company private for the second time since its initial public offering in 1969, and it would give HCA time to turn around its market performance.

Breathing room

"This gives a company like HCA the ability to duck in the hole, so to speak, in a difficult time for industry fundamentals," said Darren Lehrich, a managing director at Deutsche Bank.

"It takes a little bit of the quarter-to-quarter pressure off the management team and has a much longer term view in this environment, where we've witnessed soft volumes and deteriorating bad-debt trends for the better part of three years," he said.

Shareholders of the company, which was founded by the family of Senate Majority Leader Bill Frist, would receive $51 in cash for each share of common stock under the deal announced Monday.

Premium for investors

The deal would present an 18 percent premium to HCA's closing share price last Tuesday, the last major trading day before media reports about a potential buyout, and a 6.5 percent premium to its closing price Friday.

Shares of HCA rose $1.61, or 3.4 percent, to close at $49.48 Monday, and have traded in the $41.80 to $52.74 range over the past 52 weeks.

Barring a better offer, HCA expects to complete the deal in the fourth quarter.

The buyer is an investor group made up of Bain Capital, Kohlberg Kravis Roberts, and Merrill Lynch Global Private Equity, none of which immediately returned phone calls seeking comment.

Thomas Frist Jr., 67, the senator's brother and a board member of HCA, is joining with the private-equity groups to acquire the company he founded with his father in the 1960s.

Other members of senior management at HCA, including Chairman and Chief Executive Jack Bovender, 60, have agreed to reinvest part of their HCA equity into the new entity.

HCA on Monday reported second-quarter profit of $295 million, or 72 cents a share, down 27 percent from $405 million, or 90 cents a share, a year earlier.

Uninsured patients

HCA's earnings have been hampered by increasing costs for uninsured patients. In the second quarter, HCA's provision for "doubtful accounts" was $935 million, or 14 percent of revenues.

Wachovia Securities analyst Bill Bonello said HCA is an attractive buyout candidate because its share price has been low "despite the fact that its operating metrics have been comparable to its peers."

Paul Ginsburg, president of the Center for Studying Health System Change, a Washington, D.C.-based research group, said the deal is not likely to have much effect on patients.

He said that while the new owners might want to raise prices to help pay down debt, competition would make such a move unlikely.

But Barry Barnett, a health care consultant with PriceWaterhouseCoopers, said the new owners of HCA would be able to raise prices in markets where they are the solo player.

Impact on employers

Employers in those areas would have to pay more and could pass those increases on to workers, he said.

HCA owns or operates 176 hospitals, 92 freestanding surgery centers and facilities for outpatient and ancillary services in 21 states, England and Switzerland. There are no facilities in Washington state or Oregon. The closest are in eastern Idaho and the San Francisco Bay Area.